This copy is for your personal, non-commercial use only. To order presentation-ready copies for distribution to your colleagues, clients or customers, click the "Reprints" link at the bottom of any article.

September 3, 2013

Rising Rates Boost Q2 Annuity Sales

Second-quarter annuity sales jumped 9.9% to nearly $54.5 billion from $49.6 billion in the first quarter

Second-quarter annuity sales jumped 9.9% to nearly $54.5 billion from $49.6 billion in the first quarter, according to data reported by Morningstar and Beacon Research.

Second-quarter annuity sales, however, were down 1.4% from the $55.3 billion reported in the second quarter of 2012.

Fixed annuity sales rose to their highest quarterly level since the fourth quarter of 2011, with sales totaling $17.14 billion, up 14.6% from just under $15 billion in the first quarter and up 0.2% from $17.1 billion in the second quarter of 2012, according to Beacon Research.

“Rising interest rates, along with the steepest yield curve in nearly two years, helped drive second quarter’s fixed annuity sales growth,” said Jeremy Alexander, president of Beacon Research, in a statement.

Meanwhile, variable annuity total sales topped $37.3 billion in the second quarter, according to Morningstar — a 7.8% increase from $34.6 billion in the first quarter, but a 2.2% drop from nearly $38.2 billion in the second quarter of 2012.

Indeed, Cathy Weatherford, president and CEO of the Insured Retirement Institute, said that “in previous quarters, demand for lifetime income was balancing headwinds from low interest rates.” Now “with rates rising, we are seeing sales swing upwards with fixed sales reaching their highest mark in six quarters and variable annuity sales at their highest level in a year. With VA total net assets reaching a new record high and VA net sales showing marked improvement, overall it was a solid quarter for the industry.”

According to Beacon Research, sales of all types of fixed annuities increased from first-quarter levels. Sales of market value adjusted annuities rose 34.9%, while indexed annuity sales were up by 17.1% and income annuity sales were up by 16.9%. For the fixed annuity market, there were $9.4 billion in qualified sales and $7.7 billion in nonqualified sales during the second quarter.

According to Morningstar, variable annuity total net assets increased by a fraction of a percent from the previous quarter. Though only a slight increase, the upward movement marked the seventh consecutive quarterly increase in variable annuity total net assets, which stand at more than $1.7 trillion. This is a 10.1% increase from almost $1.6 trillion in the second quarter of 2012. Within the variable annuity market, there were $23.8 billion in qualified sales and $13.5 billion in non-qualified sales during the quarter.

“Net sales improved significantly in the second quarter despite continued large outflows from retirement plans and companies that have exited the industry over the past several quarters,” said Frank O’Connor, product manager, Morningstar Annuity Research Center, in a statement.